LONDON (Reuters) - Russia’s government will react to fresh falls in the price of oil by cutting fiscal spending above and beyond what has already been done, Deputy Finance Minister Alexei Moiseev said on Tuesday.
He was speaking as oil prices crashed to new 2009 lows, with Brent crude briefly under $40 a barrel and U.S. crude under $37.
Moiseev told Reuters he had sought to reassure investors during meetings in London that the government would stick to tight fiscal policies in the face of a contracting economy.
“If oil goes to $20, we will need to do additional (spending) cuts,” Moiseev said, speaking on the sidelines of an investment conference.
“Clearly, we have shown that we are very willing to cut fiscal spending in line with an oil price at $60, for example. In order for us to be long-term sustainable (with the) oil price at $40, we need to do additional cuts, but if the oil price goes to $20 we need to do even more cuts.”
The 2016 budget envisages a deficit of 3 percent of gross domestic product, based on oil at $40-$50 per barrel, but should oil stay below that, revenues are likely to be dented.
Banks such as Goldman Sachs have said oil could fall to as low as $20 per barrel and world oil stockpiles are at a record, according to the International Energy Agency.
Russia’s economy will contract by 3.8 percent in 2015 followed by another 0.6 percent contraction in 2016, the International Monetary Fund has predicted.
Moiseev did not give details of where the cuts could come from but noted Russian civil servants had not received pay rises for three years in a row.
“We’re facing probably the worst terms of trade and capital account shock that the contemporary Russian has ever faced ... and unfortunately we have to tighten our belts and no longer expect the living standards that we have gotten used when the oil price was very high,” he said.
“Now we will have to cut our spending on both personal balance sheets and household balance sheets ... so that’s inevitable unfortunately.”
Reporting by Sujata Rao and Kit Rees; Editing by Ruth Pitchford